PMI recovery suggests signs of stabilisation, growth in 3Q20

Malaysia’s Manufacturing Purchasing Managers’ index (PMI), which jumped to 45.6 in May from April’s record low of 31.3, has suggested signs of stabilisation and may be heading for growth in the third quarter of 2020, an investment bank and research house said.

AmBank Research said although it remained below the 50-point mark for the fifth consecutive month, the transition from the Movement Control Order (MCO) to the Conditional MCO (CMCO) and the restart of production have cushioned the downturn in the manufacturing industry.

“Declines in output and order books were notably less severe than those seen in April. With the rise in headline PMI, and assuming the COVID-19 pandemic bottoms out, this will be the first major indication that the economy is stabilising,” it said in a note today.

Still, it said the virus impact remains widespread and could continue to affect factory shutdowns and further production cutbacks.

Notably, the May decline was considerably weaker than at the start of the second quarter. There was a drop in manufacturing output although the rate of contraction has eased substantially since April.

Meanwhile, Affin Hwang Capital said new orders remained weak due to ongoing containment measures domestically and in other external economies.

“As a result, the weakness in export demand was reflected by softer economic conditions in the economies of key trading partners.

“IHS Markit also noted that supply-side disruptions continued to be a drag on the manufacturing sector as delivery times remained lengthened similar to April due to labour shortages at vendors, transportations restrictions,” it said.

Affin Hwang noted that employment was broadly stable in May, where 98 per cent of producers signaled no change in their payrolls.

Separately, Malaysia’s Leading Index (LI), which is used to anticipate the turning points in economic activity in the short term, fell sharply by 4.9 per cent month-on-month (m-o-m) in March from -0.8 per cent in February, its largest monthly fall since November 1991.

The March’s LI indicates that economic growth may be facing a sharp slowdown in the second quarter of 2020 (2Q20).

“Based on our estimates, we expect the country’s real gross domestic product growth to contract sharply, likely in the region of -7.0 per cent to -8.0 per cent y-o-y in 2Q20, as the negative impact of COVID-19 will likely be felt more strongly from the MCO.

For 2020 as a whole, we are maintaining Malaysia’s real gross domestic product (GDP) growth projection of -3.5 per cent in 2020 (4.3 per cent in 2019).

According to IHS, the ASEAN manufacturing sector continued its downward trend in May, brought on by the coronavirus disease 2019.

Output and new orders continued to decline sharply, as did foreign demand for ASEAN goods, although in all cases rates reduction eased slightly from April as quarantine restrictions were loosened and more factories began to reopen

However, among its ASEAN members, Malaysia registered the softest downturn across the seven monitored countries in May. That said, the headline figure (45.6) was indicative of a solid deterioration in operating conditions.

“Notably, each of the seven monitored countries remained mired in a downturn for the third month running during May, which lays bare the enormous impact the pandemic is having on the sector.

“Although data appear to suggest that the downturn bottomed out in April, ASEAN manufacturers are still a long way from a recovery,” economist Lewis Cooper said.

Source: Bernama